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Basis for conclusion on IFRS 12 Introduction

Basis for conclusion on IFRS 12 Introduction

Basis for conclusion on IFRS 12 Introduction 

This Basis for Conclusions summarises the International Accounting Standards Board’s considerations in developing IFRS 12 Disclosure of Interests in Other Entities. Individual Board members gave greater weight to some factors than to others.

Users of financial statements have consistently requested improvements to the disclosure of a reporting entity’s interests in other entities to help identify the profit or loss and cash flows available to the reporting entity and determine the value of a current or future investment in the reporting entity.

They highlighted the need for better information about the subsidiaries that are consolidated, as well as an entity’s interests in joint arrangements and associates that are not consolidated but with which the entity has a special relationship.

The global financial crisis that started in 2007 also highlighted a lack of transparency about the risks to which a reporting entity was exposed from its involvement with structured entities, including those that it had sponsored.

Basis for conclusion on IFRS 12 Introduction

IFRS 12 addresses the disclosure of a reporting entity’s interests in other entities when the reporting entity has a special relationship with those other entities, ie it controls another entity, has joint control of or significant influence over another entity or has an interest in an unconsolidated structured entity.

In developing IFRS 12, the Board considered the responses to its exposure drafts, ED 9 Joint Arrangements and ED 10 Consolidated Financial Statements. ED 9 proposed amendments to the disclosure requirements for joint ventures and associates to align more closely the disclosure requirements for those two types of investments. ED 10 proposed amendments to the disclosure requirements for subsidiaries and new disclosure requirements for unconsolidated structured
entities.

Basis for conclusion on IFRS 12 Introduction

During its consideration of the responses to ED 9 and ED 10, the Board identifiedan opportunity to integrate and make consistent the disclosure requirements for subsidiaries, joint arrangements, associates and unconsolidated structured entities and present those requirements in a single IFRS. The Board observed that the disclosure requirements of IAS 27 Consolidated and Separate Financial
Statements, IAS 28 Investments in Associates and IAS 31 Interests in Joint Ventures overlapped in many areas. In addition, many respondents to ED 10 commented that the disclosure requirements for interests in unconsolidated structured entities should not be located in a consolidation standard. Therefore, the Board concluded that a combined disclosure standard for interests in other entities
would make it easier to understand and apply the disclosure requirements for subsidiaries, joint ventures, associates and unconsolidated structured entities.

The Board decided to extend the scope of IFRS 12 to interests in joint operations. A joint operation is a joint arrangement that is not necessarily structured through an entity that is separate from the parties to the joint arrangement.

Basis for conclusion on IFRS 12 Introduction

Objective and scope

The objective of IFRS 12 is to require the disclosure of information that enables users of financial statements to evaluate: [IFRS 12:1]

  • the nature of, and risks associated with, its interests in other entities
  • the effects of those interests on its financial position, financial performance and cash flows.

Where the disclosures required by IFRS 12, together with the disclosures required by other IFRSs, do not meet the above objective, an entity is required to disclose whatever additional information is necessary to meet the objective. [IFRS 12:3]

IFRS 12 is required to be applied by an entity that has an interest in any of the following: [IFRS 12:5]

  • subsidiaries
  • joint arrangements (joint operations or joint ventures)
  • associates
  • unconsolidated structured entities

Basis for conclusion on IFRS 12 Introduction

The International Financial Reporting Standards Foundation, or IFRS Foundation, is a nonprofit accounting organization. Its main objectives include the development and promotion of the International Financial Reporting Standards (IFRSs) through the International Accounting Standards Board (IASB), which it oversees.[1][3]

The foundation was formerly named the International Accounting Standards Committee (IASC) Foundation until a renaming on 1 July 2010, and as of 2012 is governed by a board of 22 trustees.

The IFRS Foundation also develops and maintains the IFRS Taxonomy, which is the representation of the IFRSs in eXtensible Business Reporting Language (XBRL), via its XBRL team. The team is supported by the XBRL Advisory Council and the XBRL Quality Review Team, which respectively provide strategic advice and reviews developed taxonomies.Additionally, in 2012 the foundation issued a call for industry participants in a project to develop “common industry practice concepts” for the taxonomy.

XBRL provides a “common, electronic format for business and financial reporting”, which will contribute to the global convergence of accounting standards towards IFRS; the director of XBRL activities at the IFRS Foundation, Olivier Servais, hopes that “everybody will be using it” in future.As of March 2012, the IFRS Taxonomies have “considerably fewer” tags than GAAP taxonomies, and the Security and Exchange Commission has not approved the IFRS Taxonomy for use in XBRL filings in the United States.

Basis for conclusion on IFRS 12 Introduction

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